By Spy Uganda Correspondent
Uganda’s central bank increased its benchmark lending rate to 8.5% from 7.5% on Tuesday as the East African nation seeks to curb inflationary pressures that have sparked a wave of street protests across the nation.
Michael Atingi-Ego, deputy governor at the Bank of Uganda said inflation jumped to 6.8% in June from 6.3% the previous month, reaching the highest level in more than five years, necessitating an aggressive monetary policy response to calm price pressures.
“A higher interest rate is needed to stabilize inflation,” Mr. Atingi-Ego said. “The inflation outlook is uncertain, given Covid-19 containment measures in Asia, weak domestic agriculture production due to [the] drought and weak exchange rate.”
The rate decision was in line with most analysts’ expectations. Oxford Economics expects Uganda’s central bank to continue policy tightening as inflation remains elevated on pandemic-related supply chain disruptions as well as the fallout from Russia’s invasion of Ukraine.
“As is the case for most other central banks, the nature of the current shock means inflation will remain above target for some time with little in the way of short-term remedies,” the economic-research firm said in a note.
Since April, Ugandan authorities have repeatedly arrested opposition figure Kizza Besigye for leading street protests against spiraling inflation. High prices of basic commodities, such as vegetable oil, fuel and washing soap have stirred widespread public anger in a country where France’s TotalEnergies is developing huge crude oil reserves, estimated to contain around 6.5 billion barrels of crude.
Ugandan President Yoweri Museveni, one of Africa’s longest serving leaders, has rejected calls to scrap taxes and introduce subsidies, to tame prices. Instead, authorities have banned any protests against the rising cost of living, drawing condemnation from rights groups.
“Instead of criminalizing public criticism of inflation and the cost-of-living crisis, the Ugandan authorities should take steps to mitigate the impact on those who can least afford it,” said Deprose Muchena, director for East and Southern Africa at Amnesty International.